I guess as long a we end the week on a good note then we forget about all the pain and suffering that happened in the beginning of the week. I am happy to say that we are on track with being able to go with that theme because what seemed like a really bad turn for the worse at the beginning of the week has turned into a reason for hope.

We have seen some good price action in the bond markets since Wednesday which has brought the 10yr to a very acceptable 2.22%. While the economic calendar has been light this week there is concern that growth in China may finally show signs of cooling after decades of non-stop robust growth. While a cooling in the growth of China is still growth that most if not all other countries would die for, this would be the equivalent of the Yankees only finishing the season 5 games above .500. I am sure the Mets would be thrilled with that kind of season. My point being is that everything is relative. Regardless of the reason for the bond markets licking their wounds and coming back with some fight, I know that we all feel a lot better for it.

Looking ahead, we have another light economic calendar next week so traders will be taking their lead from the headlines for direction. I am encouraged that we did not continue the slide in bond yields. Having lived thru a fair amount of bear markets, they tend to be relenting. It is sort of like getting kicked in the midsection (I heightened the location point to be politically correct) as soon as you walk into the office and then the beatings just keep coming. It tends to make for a miserable existence.

However, with the exception of a few days, we did not get that feeling this time around. I think we have the presence of the Fed to thank for that (or maybe it is Tim Tebow). Like we have been saying, they are steadfast in keeping mortgage interest rates low which will happen by keeping US Treasury rates low. The Fed’s current and latest intervention called Operation Twist is scheduled to come to an end in June. Therefore the optimistic bond traders are looking for some new and creative move by the Fed come June that will facilitate a continued low rate environment. It might not be called QE3 which does appear to be off the table but Bernanke can and has been very creative so they are looking for something. I am sure the Fed was not happy about the quick rise in yields but they also were not losing too much sleep over it either. They know they have some influence and you just get the feeling they have more tricks up their sleeves. We will see…

Have a good weekend.

Is it Friday yet?? We have had a very bi-polar week so far in the bond markets that has made us all a little insane. This market is as confused as the Jets front office. We are perfecting the price changes this week and thankfully we were able to dust of the price change for the better yesterday after nothing but negative price changes on Monday and Tuesday.

So far today all is looking good as we are up  across the board with the 10yr sitting nicely at 2.26%. Considering we were getting real close to the 2.40% level on Tuesday, I do find the resilience of the bond markets to be impressive. What I really did not like about Monday and Tuesday is that we started out in positive territory but the markets were unable to sustain the rally. There was no news that triggered the days sell-offs but when that happened it was fast and furious without the smashing cars of course. Those are not good signs because it clearly shows a bearish trend.

However, market sentiment can and does change quickly when there is not strong directional convictions. I still do not think we are out of the woods because I still feel we are on thin ice but there is no doubt that this little rally is encouraging. There was a lot of talk over the last few days that higher bond yields need and should happen. However, they might have gone up too much too fast. So perhaps this is just a little correction of that thought. We have not had any major economic news events happen so I do buy into that this little rally is just some mild correction but I do not expect any return to the <2.00% 10yr anytime soon barring a EU tape bomb.

If we manage to stay in a tight trading range that is a little lower/higher from here then I do believe this is a great environment to grow pipelines by getting the borrowers who were on the fence to commit to refinancing. This is not a “sticking out my neck” moment because a lot of seasoned mortgage veterans share the same viewpoint.

Yesterday we saw the release of the Weekly MBA Application Survey. I apologize for being a day late but I do want to mention the highlights:

• Applications decreased 7.4%
• The Refinance Index decreased 9.3%
• The Purchase Index decreased 1.0%
• The refinance share decreased to 73.4% which is the lowest since July 2011
• The average 30yr conventional rate was 4.19% w/.47pt
• The average 30yr FHA rate was 3.93% w/.48pt
• The average 15yr conventional was 3.47% w/.40pt
• The average 5/1 ARM was 2.90% w/.44pt

Bond markets are up today as it seems that investors are moving back into Treasuries with the stock market down over 1% and oil down 1.5%. Since the Dow hit 13k, investors have made it clear that they were not comfortable with that level just yet and we have since seen better selling at those levels. This along with the drop in oil prices from their highs has helped support the bond markets. We now see the Dow sitting @ 12,799 with the 10yr @ 1.94%

The big story today in the mortgage market is the speech that Obama will give today unveiling his “Blueprint for an America Built to Last” plan (sounds catchy doesn’t it?). What it will do is clearly map out what he will do to help “responsible borrowers”. It is a very thorough plan that addresses relief to military members as well as homeowners with outstanding FHA mortgages.I am sure that many of you will want to jump to the 4^th page which addresses streamline refinances.

All this will need to be absorbed by the mortgage market so nothing will be immediate but it does appear that much of what Obama will announce today does not require congressional approval so that means that most if not all of this will be available in the marketplace. Be assured the FFF will do everything possible to be involved.

We are going to cut this a little short today because of the importance in reviewing the attachment but keep in mind that we have the Non-Farm Payroll report this Friday and the ADP report tomorrow. Both numbers especially Friday’s NFP number have the potential to be market movers.

The bond markets are opening up from yesterday’s close as there was a report this morning on US durable goods orders that show the biggest declines in 3yrs. In addition, S&P downgraded Greece’s credit rating to “Selective Default”. This is no big surprise but it is the 1^st time this was done to a EU nation since the creation of the Euro. A couple of things have been made clear in the financial markets over the last few days.

First, the Dow does not want to close above 13k. We have touched it several times over the last week or so but there seems to be little support at that level. The stock rally has been impressive so it appears to be at a crossroads right now. I think more positive news needs to surface before we get another push there. Second, the markets do not like higher interest rates. We did touch the 2.07% 10yr a few days ago (this is a level that we have been noting is the 1^st level of support) but there has been swift and aggressive buying since as we are now trading @ 1.90%.

There has been a lot going on in the last few days regarding the contraction of mortgage lending. Some are at greater degrees than others so I will attempt to summarize in order of importance:

1. FHA Increases Fees- In response to the need to help shore up its reserves and the implementation of the Temporary Payroll Tax Cut Continuation Act (remember that 10bps G-fee increase), the FHA announced it would increase its annual mortgage insurance premium by .10% for loans <$625k starting 4/1. In addition the premium for HLB loans will increase by .35% starting on 6/1. This appears to be across the board for all loans. In addition they plan to raise the upfront mortgage premium by .75% to 1.75% which we know can be rolled into the mortgage amount. This increase appears to be for new FHA loans only, therefore it is not applicable for refinances. This certainly is a series of actions by FHA to raise some seriously needed cash and is begging private capital to emerge to help fill this mortgage void. The FHA was never comfortable with its increased market share and they are taking these actions as a result. One can understand their anxiety when you consider their dwindling reserves and the fact that their market share ballooned to 40% of new purchased in 2010 from 4.5% in 2005. The impact on this remains to be seen as many people have stated that with a lack of consumer options (FHA or conventional) this may not have as much of an impact as one would expect. We will see.
2. Increased Cash Out Fees- Effective 3/1 a major investor will increase the adjustments for c/o conventional refinances by .50 to 1.0pt. While this is a concern, at this time, others have not followed so that is a positive sign to hold on to.
3. Miscellaneous Investor Overlays- 2 separate investors have added 2 separate overlays to their guidelines. While this does not restrict FFF from doing these products it is worth noting. One investor will no longer allow multi units in NY and the other will have a minimum FICO of 740 for conventional ltv’s >80.0%

All this does add fuel to the fire about the complaint that the general public and politicians have about banks not lending aggressively enough. While we all know that politicians talk out of both sides of their mouths so we cannot take them too seriously because their policies (see #1 above) have in many cases caused banks to restrict lending, I can understand the frustration of the general public.

Unless you are involved in the mortgage business like we all are then you do not understand that it is government policy and pressure from the agencies in the form of persistent buybacks that is restricting banks from lending at a time when rates are at historically low levels. I can go on with this but I believe everyone gets the point.

We are beginning the week with a relatively quiet trading start as the markets are pretty much unchanged from Friday’s close. A quiet Monday morning is definitely not unique when it comes to the bond markets but given the news that the Greek parliament passed the legislation to approve measures that would include a second bailout package, it is a little surprising that there is not a greater reaction.The lack of reaction is due to the fact that this was already baked into the market.

The whole EU story is far from over but the markets appear to have a limited reaction to the day-to-day drama because this a novel that has a long way to go with many more chapters. Therefore putting too much weight on one story line is probably viewed as an unnecessary over-reaction. The measures approved by the Greek parliament  are worth noting. The measures included a 22% reduction in the minimum wage, pension cuts and an immediate layoff of around 15.000 state workers. As one would expect the Greek public has responded with protests and riots.

The issues in Greece makes those of us who do not have the pensions/benefits of state/municipal workers hoping that our local politicians are learning something from these events. While I do not fault our friends, family or neighbors from enjoying those great benefits and getting to retire at 45 with ¾ quarters pay (ok maybe I am a little bitter), they are coming at  the expense of the private work force employees who get a fraction of those benefits but continue to see their tax burdens increase. I for one cannot open up my property tax bill without seeing another increase. I must be sitting on an oil well because the city overstates my property value exponentially. I know that my complaint is much like many others. Or we get another form of taxing by the never ending toll increases. Would our services be that much different if the Port Authority did something drastic and actually cut expenses instead of just putting thru another toll increase? I know…a crazy idea.

The point here is that what is going on in Greece could and should happen here if it was not for our ability to print money by issuing municipal debt on the state level or issuing US Treasuries on the Federal level. The folks in Greece do not have those options and were therefore forced to cut costs or default on their debt. Food for thought…